After interest rate cut, people expect more to follow

PUNE: The cut in lending rates by India’s largest public sector bank SBI and a couple of other lenders will act as a “morale booster” for those looking to buy a property, experts from the realty sector said on Monday.

However, they said, a lot more needs to be done before people can come back in droves to the real estate market.

“A large number of people are still in the wait-and-watch mode. A majority of them are still waiting for things like more sops in the Union Budget, impact of the real estate regulation act (RERA) and also a likely fall in property prices,” Sumeet Bhatia, managing director – Pune, Cushman and Wakefield, said.

The state government has released a draft of the RERA, which a lot of experts believe is a watered down version of the central bill. A lot of builders and developers have argued that the property prices will increase as compliance cost would rise for them after RERA. Experts, however, said better planning and time-bound execution of projects will keep the cost factor in check.

For now, people are expectantly looking at property price crash as a direct benefit of the demonetisation move. “The sentiment will change a little in the coming days when people realise that the price crash is not happening. On the contrary, before the full blown effect of RERA happens and the compliance cost goes up, there will be a lot of people who will want to buy into a project,” Rohit Gera, managing director, Gera Developments, said.

Bhatia said a 50-60 basis points cut will surely act as the morale booster for potential buyers. “Having said that a lot of people will still wait and watch for the budget. Those staying on rent will also evaluate their options before moving into their own property,” he said, adding that it is “sensible” to wait for few more days for the fog to clear.

Moreover, experts said, there is a high probability of rate cut by the banks in the coming days. There is still more than 2.3% gap between the policy rate set by the RBI (the rate at which banks borrow from RBI) and the rate at which banks lend home loans to their customers, they argued.

“I think that an interest rate of 7.5-7.75% on home loans (current minimum rate is 8.60%) is imminently doable. Those were the interest rates in 2006, when the demand went up drastically,” Gera said.

An 1% reduction in rate on a 20-year home loan can bring down the EMI by as much as Rs 1,900 per month. This is an advantage just in theory though. A rate cut this month does not necessarily mean that the rates will remain frozen for the entire tenure. Rates are purely a function of inflation and deposit rates. Therefore, a lot more than just a rate cut might be required to meaningfully boost demand in the real estate sector.

Credits ET Realty

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